Filed Under:Your Practice, Regulatory

California to consider wide scope of hazardous conditions

California Insurance Commissioner Dave Jones. (photo courtesy of CDI's website)
California Insurance Commissioner Dave Jones. (photo courtesy of CDI's website)

Under proposed California Department of Insurance (CDI) regulations, the commissioner could make far-reaching financial decisions for insurers under a broad range of conditions deemed hazardous, including adverse findings in market conduct exam reports.

California conducts three types of market conduct exams: financial exams; claims activity and lastly, rating and underwriting.

The adverse findings can be reported in financial condition and market conduct examination reports, audit reports, actuarial opinions, reports or summaries, according to the proposed regulation. 

“This would include both rating and claims examinations. This suggests that the CDI is attempting to bring market conduct examinations within the framework of 'hazardous financial condition,’” wrote Robert Hogeboom of Barger & Wolen LLP in Los Angeles in a recent blog entry. 

On Aug. 7 in Sacramento there will be a hearing on the proposed regulations and Hogeboom will testify against them on the grounds that the CDI is going beyond its statutory authority with “extremely broad regulations” that allow for no due process, he says.

There is no administrative hearing process to resolve disputes involving the commissioner’s corrective action orders, Hogeboom has argued. The insurer has the opportunity to be heard by requesting a meeting with the Commissioner. Thereafter, the only redress for the insurer is to seek a judicial challenge, Hogeboom writes. 

California is not shy in its market conduct exams and enforcements -- one cannot find a conduct exam that did not find deficiencies from this past year. Last year, Commissioner Dave Jones made Travelers Companies pay $10.5 million in refunds and fines in an enforcement action. 

Most of the standards are financial in nature, but there are many more in place than insurers would like, and they worry that they give the commissioner the authority to demand multiple actions or directives to a company, from suspending  issuance of dividends to increasing capital and surplus or changing governing practices.

Hogeboom, who is outside counsel to the Pacific Association of Domestic Insurance Companies, said today in a brief interview that the CDI is trying to do with regulations what it has been given no authority to do by legislation.

The CDI lists more than two dozen provisions in the state insurance code that gives it authority. The standards may be considered singly, or in combination. 

Including the hearing Aug. 7, there are several approval process steps to go and CDI is looking for approval/implementation in early 2014, a spokeswoman said. 

CDI is the largest consumer protection agency in the state of California in its regulation of the $125 billion insurance industry

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Nichole Morford

Nichole Morford
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